What's at stake if trading at Strait of Hormuz is disrupted?

by Ted Regencia & Alia Chughtai

When Iranian President Hassan Rouhani dismissed the US efforts to block all of Iran's crude oil exports, he neither mentioned the Strait of Hormuz, nor the actions Tehran could take to disrupt trade at the world's busiest oil transit chokepoint, which translates to 30 percent of seaborne global oil exports every day. 

Rouhani's response was nonetheless interpreted as a threat to the narrow waterway located between Iran and Oman, where at least 18.5 million barrels of oil were transported every day in 2016, based on a US energy department report.

He had earlier complained that "it has no meaning for Iranian oil not be exported, while the region's oil is exported", adding in a defiant tone that the US "will never be able to cut Iran's oil revenues".

WATCH: Rouhani says US unaware of consequences of Iran oil ban (2:30)

Before flying back from Europe to Tehran early on Thursday, the Iranian leader renewed his criticism of the US, saying its move to choke off Iranian oil "shows they have not thought about its consequences".
Ismali Kowsari, an Iranian Revolutionary Guard Corps (IRGC) commander, was more blunt, telling Iran's Young Journalist Club on Wednesday that if Iranian oil exports are prevented, "We will not permit the shipment of oil through the Strait of Hormuz."
The US military quickly responded, vowing to keep the Gulf waterways open to oil tankers and "ensure the freedom of navigation ... wherever international law allows."
Iran experts said the latest exchange of words between Tehran and Washington highlights the brewing tensions between the two countries before the return of US sanctions, as well as the implications a disruption at the Strait of Hormuz could have on the global energy market.
Saeid Golkar, an Iran expert at the University of Tennessee in the US, said a threat by Iran to block the strait is "not a new thing", noting that the Islamic Republic's revolutionary guards had used the threat "to deter" the country's regional rivals, as well as the West.

Indeed, on many occasions from 2011 to 2016 Iran's Revolutionary Guards have threatened to shut down the Strait of Hormuz, either in response to US and European sanctions of a total oil embargo against the country. The threats, however, were never carried out. A report by the journal Foreign Policy described them as "hollow threats".

'Frustration and hopelessness'

"The IRGC has been prepared for this operation for decades," Golkar said referring to the military unit, which reports directly to Iran's Supreme Leader Ayatollah Ali Khamenei.
"Rouhani using this threat is new, however," he noted, adding that it reflects the president's "frustration and hopelessness" over the impending return of US sanctions against Iran.
In an interview with Al Jazeera English television, Nader Hashimi, director for Middle East Studies at the University of Denver, said US President Donald Trump's hardline approach has only forced Iran to make drastic counter threats.

WATCH: Iran's MPs debate Strait of Hormuz closure (2:15)

"What we are seeing right now is a result of unilateral American sanctions," he said, referring to the US decision to withdraw from the 2015 Iran nuclear deal and reimpose sanctions on Tehran.
"The United States has pursued this hardline policy and the Iranian leadership is starting to panic" and is pushing back, Hashimi added.
Golkar of the University of Tennessee, however, said that an Iranian threat to disrupt oil export in the Gulf could unsettle the energy prices, prompt countries like China and India to turn against the country, and "undermine Iran's foreign policy of looking to the East".
According to figures published by TankerTrackers.com, which monitors energy shipments at the Strait of Hormuz, Iran exported 560,000 barrels of crude oil and gas condensates to India and China in June 2018. That is followed by South Korea at 252,000 barrels a day and Japan at 206,000 barrels a day.

'Iran-US animosity growing'

But it is not just Iran that will be affected by any disruption at the Strait of Hormuz.
For example, Qatar exports about 3.7 billion cubic feet of liquefied natural gas (LNG) a year through the strait. That accounts for 30 percent of the global LNG supply annually, according to the Maritime Executive website.
As of Thursday, July 5, the OPEC price of crude is at $74.62 a barrel, while the price of LNG as of June 18, 2018, was pegged at $11.6 per million British thermal units.

WATCH: US hosts largest ever naval exercise in the Gulf (2:09)

For years, the Strait of Hormuz has witnessed incidents that have threatened regional security as well as affected prices of oil and gas.
In April 1988 for instance, US forces sank Iran's operational fleet just days after a US frigate was badly hit an Iranian mine off the coast of Qatar, according to the US Navy.
On July 3 of the same year, the US naval ship Vincennes fired two surface-to-air missiles on a civilian Iran Air flight from Bandar Abbas to Dubai killing 290 people on board.
More recently, Iran's Revolutionary Guards detained US sailors when after their boats drifted into Iran's territorial waters in January 2016. The sailors were later released.
According to an Associated Press report in July 2017, the US Navy recorded 35 instances of "unsafe/or unprofessional" interactions with Iranian forces in 2016 and 23 similar incidents in 2015.
Given the nature of the Strait of Hormuz, the International Crisis Group, which monitors conflicts, warned that "rising tensions, incidents are almost unavoidable".
It urged Tehran and Washington, DC, to negotiate an Incident At Sea agreement to difuse tensions.
But with the US sanctions against Iran snapping back within months, the animosity between the two countries is only getting more intense. And it could be just a matter of time before the next spat erupts.

SOURCE: Al Jazeera News